Storing a large amount of crypto in an online hot wallet raises significant concerns, primarily due to the risk of hacking. Suppose your online wallet falls victim to a hack. In that case, there is a possibility of losing a portion or the entirety of your crypto assets, and the process of recovering them can be incredibly challenging, if not entirely impossible.

Certain exchanges provide a solution in the form of crypto vaults to enhance security for substantial crypto holdings. This article aims to delve into the concept of crypto vaults, using them, and how it is different from wallets.

Understanding Crypto Vaults

A crypto vault represents a specialized storage service that offers enhanced security features for safeguarding cryptos like Bitcoin and Ethereum. Unlike the standard crypto wallet, the crypto vault provides additional security measures to prevent theft and unauthorized access to digital assets. These security features include multi-factor authentication, withdrawal delay, and approval procedures.

Users can deposit and withdraw digital assets in a crypto vault, but withdrawing usually comes with more restrictions than a regular wallet. Owners of a crypto vault are typically notified of any attempted transactions and must authorize them before the payment is completed, adding an extra layer of security. The crypto vault is a completely separate system from the user’s blockchain activity, meaning that no transactions are processed directly from the vault.

How to Use a Crypto Vault?

• Deposit Funds: To use a crypto vault, you can provide the sender with the unique address associated with your vault. Alternatively, you have the option to transfer cryptos directly from your regular wallet into the vault.

• Withdrawing Assets: Retrieving assets from the crypto vault is intentionally designed to be more complex, aiming to enhance security. The process involves the following steps:

• Submit Withdrawal Request: Begin by initiating a withdrawal request for the desired amount of crypto you wish to retrieve from the vault.

• Confirmation Emails: After submitting the withdrawal request, your primary and secondary email addresses will receive separate confirmation emails.

• Authorization: The transaction will only proceed once both email addresses have completed the authorization process.

• Delayed Withdrawal: Typically, withdrawals from the crypto vault are delayed for a period of 48 hours after receiving the necessary authorization. This delay acts as an additional security measure, known as a “firebreak.”

• Rejection Option: During the 48-hour delay period, as the owner of the vault, you have the freedom to reject the withdrawal request if you deem it necessary, providing an added layer of control over your assets.

By following these steps, users can leverage the enhanced security features of a crypto vault to protect their digital assets from potential threats and unauthorized access.

Pros and Cons of Crypto Vaults

Pros Of Crypto Vaults

• Enhanced Security: Crypto vaults offer superior security compared to crypto wallets, primarily because of the approval process and the ability to cancel transactions.

• HODLing Support: The withdrawal delay feature makes crypto vaults an excellent choice for investors seeking to hold onto Bitcoin and other cryptos for extended periods, minimizing the risk of impulsive trading decisions.

• Transaction Cancellation: Vault owners can cancel transactions within the designated delay period, providing them with added control over their digital assets.

• Robust Authentication: The implementation of multi-step authentication significantly raises the bar for hackers attempting to gain unauthorized access to funds.

Cons Of Crypto Vaults

• Limited Accessibility: Crypto becomes less readily available when using vaults, restricting owners from swiftly utilizing or selling their assets, especially during high market volatility.

Have you wondered why there was a need for a crypto vault when we already have wallets? Let’s find out in the following section how vault is different from wallets.

Vaults Vs. Crypto Wallets

One common question often asked is, “What sets a wallet apart from a vault?”

Essentially, a wallet is initialized using a seed phrase or private key, enabling interactions with a blockchain. It allows users to perform various transactions, such as sending and receiving, as well as buying and selling cryptos. Moreover, wallets facilitate the signing of transactions on the blockchain, granting authorization for their execution.

Wallets are used to perform numerous transactions and interact with the blockchain.

In contrast, a Vault is passive and detached from your blockchain activities. It remains separate from any transactional processes and primarily serves as a secure storage space for important assets like seed phrases, passwords, private keys, and digital artwork.

Thus, a Vault serves a fundamentally different purpose compared to a wallet.

Let’s see how vault is different from hot and cold wallets.

Vault vs. Cold Wallet

Cold wallets are hardware devices that store cryptos offline, making them one of the safest storage methods available. As they are not connected to the internet, they are impervious to hacking attempts. However, due to their offline nature, cold wallets are not well-suited for swift transactions.

On the other hand, a Vault is a secure storage solution hosted by a third-party provider in an encrypted environment, offering multiple layers of security.

Both cold wallets and vaults are designed to safeguard cryptos against cyber threats, but a vault takes security to a higher level as it specifically focuses on protecting digital assets.

Vault vs. Hot Wallet

Being connected to the internet, hot wallets offer greater user-friendliness than cold wallets. They allow for quick and easy transactions, making them suitable for day traders and those requiring frequent cryptos movement.

Vaults, on the other hand, function as secure storage solutions designed for keeping digital assets offline. Hosted by third-party providers in encrypted environments, vaults provide multiple layers of security.

Hot wallets are considered safe for day traders and individuals dealing with smaller amounts of crypto. However, for those seeking a long-term and highly secure storage option for their digital assets, vaults are the preferred choice.

Now, let’s see a list of factors you should consider before choosing a secured crypto vault.

How to Choose a Crypto Vault?

When considering a crypto vault, several crucial factors must contemplate to safeguard your digital assets effectively.

• Approval layers: An essential security feature to look for is an approval layer, which necessitates multiple individuals to authorize any transaction before it’s finalized. More signatures enhance security, as each transaction must gain approval from multiple parties before execution.

• Security: The utmost priority is the security offered by the crypto vault. Opt for a vault that implements top-notch security measures like multi-factor authentication and encryption, shielding your digital assets from hackers and cyber-attacks.

• Convenience: Choose a crypto vault with a user-friendly interface and streamlined procedures, ensuring ease of use and navigation. Vaults offering fast transactions can simplify the management of your digital assets.

• Insurance and reimbursements: Consider selecting a vault that provides insurance or reimbursements in case of asset loss or theft. This additional layer of protection grants peace of mind and further safeguards your investments.

• Reputation: Prioritize choosing a crypto vault with a reputable standing in the industry. Read reviews and gather feedback from other users to ensure that the vault you opt for has a proven track record of reliability and security.

Bottomline thoughts

A crypto vault provides a more secure method of storing Bitcoin and other cryptos compared to regular wallets, thanks to its enhanced security and verification protocols.

However, it’s worth noting that while vaults offer heightened security for your assets, they also come with increased difficulty in accessing them. If you wish to have a portion of your funds readily accessible while safeguarding your long-term investments, you can consider a combination of crypto wallets and vaults.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.